Have you ever carefully checked a proforma invoice, except for the terms of sale? After working on hundreds of disputes over contracts for the international sale of goods, we realized that the answer is negative. Neglecting the related terms may cause some serious problems, such as difficulty in ascertaining who the contracting party in China is or what the agreed lead time is.
A proforma invoice is also known as a PI and is commonly used in international trade practice. When a buyer and a seller finalize the price, quality, quantity, and payment terms of certain merchandise, usually the seller will issue a PI to the buyer, and the buyer will make payments against it.
According to judicial practices in China, in the absence of a contract, a PI holds the same effect. A well-written PI helps reduce the risks of disputes. Hence, what is displayed in a PI really matters to determine the rights and obligations of the contracting parties. Why not spend a few minutes and carefully read the following points?
- Ensure to verify the seller’s company name and address. When placing an order, it is essential to be certain about the entity you are dealing with. If the company name on the proforma invoice (PI) does not match the one you are communicating with, don’t hesitate to raise objections. This aspect is often overlooked, especially when Chinese company names are challenging to differentiate. However, in the event of a dispute, the first crucial step is to ascertain the contracting party in the transaction. This determination will dictate the appropriate party to sue and the jurisdiction where legal action should take place.
- Ensure that the lead time is clearly and explicitly stated. Avoid using vague language such as “20 days to produce,” as it leaves ambiguity about when the countdown begins. If you encounter problems with your partner, this vague term will not adequately protect your rights.
- Verify whether the beneficiary’s name in the bank details matches the company name on the proforma invoice (PI). In most cases, it should be the same company that sells the goods and receives the payments. If it doesn’t match, exercise caution as it could indicate the involvement of a shell company attempting to transfer its assets to evade liabilities or, in the worst scenario, a potential trade scam.
Ensure that there is a round-shaped red stamp at the bottom of the proforma invoice (PI). In China, the process of signing contracts differs from the rest of the world, and the company stamp holds significant importance as a symbol of corporate power. Often, official documents are validated using the company seal instead of a signature. This holds crucial importance for two reasons.
Firstly, when disputes arise, your Chinese counterpart may deny agreeing to the contract, citing that the salesperson you dealt with lacked the authority to act on behalf of the claimed company. This raises concerns about the representative’s legitimacy.
Secondly, if they signed their English name, which may not be officially registered with the government, it becomes challenging to trace their real identities afterward. Hence, the presence of the red stamp helps ensure the authenticity and authority of the contract.In summary, it is crucial to thoroughly review the proforma invoice (PI) to ensure clarity in lead time and avoid vague language. Additionally, verify that the beneficiary’s name in the bank details matches the company name on the PI to prevent potential scams or liabilities. Pay attention to the presence of a round-shaped red stamp at the bottom of the PI, as it signifies the contract’s validity and the authority of the signing party in China. Lastly, be cautious about discrepancies in signatures and claims of representation, as they may lead to disputes and difficulties in identifying the real parties involved.